Retainer invoices and deposits in Zoho Books: the short answer

To handle retainer invoices and deposits in Zoho Books, raise a retainer invoice before work starts. Record the customer's payment against it, then apply that retainer to the final invoice. The deposit sits as a liability until you apply it, and the final invoice then shows only the balance the customer still owes.

A retainer invoice is the document Zoho Books uses to bill a customer for an advance payment. You raise it before you deliver the product or finish the service. Zoho Books handles it in a dedicated Retainer Invoice module under Sales > Retainer Invoices, separate from ordinary invoices. That separation matters, because a retainer is not income when you receive it.

This guide covers three things in order:

how to raise a retainer invoice, including automatically from a quote
how to record the deposit and apply it to the final invoice
the reconciliation mistakes that happen when deposits are left unapplied or booked as ordinary income

Every product detail here comes from Zoho's own help pages. Some points depend on your tax position, such as VAT on deposits. For those, the guide tells you to confirm with your accountant rather than guess.

Why a deposit in Zoho Books is a liability, not income

A deposit you collect before doing the work is a liability, not income. Zoho's help page on retainer invoices in Zoho Books says so directly. It states that the amount collected "will not be an income but a liability to the company."

The reason is simple. You have taken the customer's money but you have not yet earned it. Zoho's help states that revenue is earned only when the product is delivered or the service is completed. If you do not deliver or complete, the advance payment goes back to the customer.

A retainer, in Zoho's terms, is an advance payment collected for products sold or services rendered. Many businesses collect one. A design studio takes a deposit before a project. A manufacturer takes an advance before a custom order. A consultancy bills upfront for a block of work.

This liability treatment is why Zoho Books keeps retainers apart from ordinary invoices. An ordinary invoice records income. A retainer invoice records money you hold on the customer's behalf until you earn it. When you later apply the retainer to the final invoice, the liability clears. The income then appears at the right time, against the work actually done.

If you remember one rule from this guide, make it this one. Never record a deposit as a normal sale.

Raising a retainer invoice in Zoho Books: four starting points

Zoho Books lets you raise a retainer invoice from four places, so you can match the method to how your work begins. The Zoho help pages list each of these routes:

Directly in the module. Go to Sales > Retainer Invoices and create a new one for the customer.
From a quote. Collect the retainer when the customer accepts your quote, either by hand or automatically.
From a project. Create retainer invoices from projects, which suits time-based or phased work.
From the customer portal. Collect retainers through the portal your customers already use to view and accept documents.

You can also import retainer invoices in bulk and export them. That helps when you move from another system with deposits already open.

Whichever route you choose, a new retainer invoice starts in Draft status. Zoho's guide to managing retainer invoices confirms that it moves to Sent once you send it to the customer. If your organisation uses Transaction Approval, which requires a second person to approve a transaction before it goes out, the retainer invoice shows Pending Approval and then Approved.

For most service businesses the quote route is the cleanest, because the deposit follows directly from the price the customer agreed. The worked example below uses it.

Worked example: a Zoho Books quote that creates its own retainer invoice

The quickest way to take deposits consistently is to let Zoho Books create the retainer invoice from the quote. Zoho's walkthrough on automating retainer invoice creation sets out the steps.

Take a design studio quoting a client for a website project. The studio wants a deposit before any work begins. Here is how it sets that up:

Open the quote. On the iOS app, go to More >> Quotes. On the Android app, open the left side panel and go to Sales >> Quotes.
Set the percentage of the quote that the deposit should cover.
Scroll down and enable the option "Create a retainer invoice for this quote automatically."
Send the quote to the client.

When the client accepts the quote from the customer portal, Zoho Books creates the retainer invoice automatically. The same happens if the studio marks the quote as sent by hand. The new retainer invoice is in Draft status, for the percentage set on the quote.

The studio then reviews the draft and sends it. When the client pays, the studio records the payment and the retainer becomes Paid. Zoho's walkthrough notes that the retainer payment is stored as unused credit for the customer, ready to apply to future invoices. That unused credit is the money the studio must remember to apply when it raises the final invoice.

Recording the deposit payment against a retainer invoice

You record a deposit payment on the retainer invoice itself, not on a sales invoice. Zoho's help lists two ways to do it. You can record an offline payment, such as a bank transfer you have already received. Alternatively, you can charge the customer through a connected payment method.

Once you record the payment, the retainer invoice status changes to Paid. The amount then sits as unused credit on the customer's record. It stays there until you apply it to an invoice or refund it.

Refunds have their own statuses. A fully refunded retainer shows as Drawn. A partly refunded one shows as Partially Drawn. These statuses matter when a project is cancelled and the deposit, or part of it, goes back to the customer, which Zoho's help describes as the expected outcome when work is not completed.

Test your online payment options before you rely on them for deposits. In a Zoho community thread, one Zoho Books user reported that ACH payments set up through Stripe and Plaid worked for regular invoices. The same user said customers were not offered that option on retainer invoices. Send a test retainer invoice to yourself and check that the payment method you expect actually appears.

Applying a retainer to the final invoice in Zoho Books

Applying a retainer to the final invoice is the step that turns the held deposit into earned income and leaves the customer owing only the balance. Zoho Books supports applying a retainer to an invoice. It also supports applying several retainers to a single invoice.

In practice, you raise the final invoice once the product is delivered or the work is done. You then apply the customer's retainer, held as unused credit, against that invoice. The invoice total stays the same, the deposit reduces the amount due, and the customer's statement shows the deposit and the remaining balance on the same document.

Multiple retainers are common on longer jobs. A consultancy might take one deposit at the start and a second at a midpoint. When the final invoice goes out, both retainers can be applied to it, so the customer sees one closing figure rather than several loose credits.

The same approach exists in Zoho's subscription product. The help pages for retainer invoices in Zoho Billing describe a Retainer Invoice module and the option to apply multiple retainers to an invoice. If you run recurring billing in Zoho Billing alongside Books, the logic you learn here carries across.

Apply the retainer when you create the final invoice, not weeks later. The longer a deposit sits unapplied, the more likely someone chases the customer for money they have already paid.

Retainer invoice statuses in Zoho Books and what each one tells you

Each retainer invoice status in Zoho Books tells you where the deposit stands and what you should do next. The statuses below come from Zoho's help page on managing retainer invoices.

Status	What it means	What to check
Draft	Created, not yet sent	Amount and customer are correct before sending
Pending Approval	Transaction Approval is on and it awaits approval	The approver knows it is waiting
Approved	Approved under Transaction Approval	Send it to the customer
Sent	Sent to the customer	Payment arrives as agreed
Paid	Payment recorded	Apply the credit when the final invoice is raised
Partially Drawn	Amount partly refunded	The remaining credit is still correct
Drawn	Amount fully refunded	No credit should remain for this deposit
Void	Marked as void	No payment was recorded against it in error

Paid is the status to watch most closely. A Paid retainer means you hold the customer's money. Before you close each month, every Paid retainer should match either work still in progress or a final invoice it has been applied to.

Reconciliation mistakes with deposits: left unapplied or booked as income

Two mistakes cause most deposit problems in Zoho Books: deposits paid but never applied, and deposits recorded as ordinary income. Both distort the customer balance, and both are easy to miss until a customer queries a statement.

Deposits left unapplied

An unapplied deposit stays on the customer as unused credit while the final invoice shows the full amount as outstanding. The customer's account then looks as if they owe more than they do. Your receivables report overstates debt, and a reminder may go out for money already in your bank. The credit and the invoice cancel out on paper, but nobody notices until someone applies one to the other.

Deposits booked as ordinary income

A deposit recorded as a normal sale counts as revenue before you have earned it, which goes against Zoho's own guidance that a retainer is a liability. Problems follow when the final invoice is raised for the full job. The income then appears twice, once for the deposit and once in the final invoice, unless someone spots it and corrects it by hand.

At Svennis we check each customer's unused credit against open invoices before a month is closed. A deposit paid but never applied to the final invoice is the retainer error we find most often when we review client books. Catching it at month end takes minutes. Catching it after a customer complains takes far longer and costs goodwill.

An applied deposit leaves only the balance due, while unapplied or income bookings distort it. Applied to final invoice / Left unapplied / Booked as income. Where the deposit sits: Used against the final invoice / Unused credit on the customer / Ordi

Month-end checks on retainer invoices with filters, custom views and exports

Zoho Books gives you the tools to review retainer invoices quickly at month end, without exporting everything to a spreadsheet first. Three features do most of the work.

Status filters. Go to Sales > Retainer Invoices and click the All Retainer Invoices dropdown at the top of the page. Select a status, such as Paid, to see only those deposits. This is the fastest way to list the money you are holding for customers.

Custom views. A custom view is a saved filter of retainer invoices based on criteria you set. Zoho's help on custom views for retainer invoices notes that you can share a view with chosen users. A shared "Paid retainers" view gives your bookkeeper and project leads the same list to work from.

Columns, sorting and export. You can choose which fields appear and drag columns into the order you want. You can also sort any column in ascending or descending order. Once a view looks right, export it. Zoho lets you pick the export format and set a password to secure the file, which is sensible for anything holding customer financial data.

A simple routine works well. Filter by Paid, sort by date, and ask whoever owns each job whether the work is still in progress. Any deposit tied to finished work should be applied before the month closes.

What retainer invoices in Zoho Books mean for a UK company

For a UK company, retainer invoices in Zoho Books depend on two practical points: your plan and your VAT treatment. Check both before you take your first deposit through the system.

The plan comes first. Zoho's help states that the Retainer Invoices feature is available on the Professional, Premium, Elite and Ultimate plans of Zoho Books. If your organisation is on a lower plan, you will not see the module, and you may be tempted to record deposits as ordinary sales instead. That workaround creates exactly the income problem described earlier in this guide.

VAT treatment comes second. Deposits raise questions about when VAT becomes due and how it shows on the retainer invoice and the final invoice. This guide does not set out those rules. Agree the treatment with your accountant, then configure tax on your retainer invoices to match before you send any to customers.

Reporting is the third consideration, and it follows from the first two. When deposits sit as liabilities and income appears only on delivery, your monthly figures reflect work actually done. That makes comparisons more honest if you track budgets against actuals in Zoho Books, because a large upfront deposit no longer inflates one month's revenue and leaves the next looking weak.

Next steps for setting up retainers in Zoho Books

The next step is to run one deposit end to end in Zoho Books before you use retainers with real customers. A single test shows you where each figure lands and whether your settings are right.

Confirm your Zoho Books plan includes Retainer Invoices.
Agree the VAT treatment of deposits with your accountant.
Create a test quote, set a deposit percentage and enable "Create a retainer invoice for this quote automatically."
Mark the quote as sent, check the draft retainer invoice, then send it to yourself.
Record a payment and confirm the retainer shows as Paid, with the amount held as unused credit.
Raise a final invoice and apply the retainer to it. Check that the customer balance shows only what remains.
Create and share a custom view of Paid retainers for your month-end review.

If the test throws up questions about tax settings, approvals or existing deposits sitting as income, it helps to have someone review the setup. Our guide to Zoho Books partner services explains what that support covers beyond the initial setup, so you can judge whether you need it.

Sources

Looking for a Zoho partner in the UK? Svennis has been a Zoho Premium Partner since 2011, with more than 200 implementations delivered. See how we work as a UK Zoho Partner.

Retainer invoices and deposits in Zoho Books and how to apply them correctly